Big contribution changes ahead for over 50s
If you’re aged 50 or over, some changes are on the horizon this year that could impact your retirement plans.
Without good strategic advice, you could miss some significant opportunities or incur higher tax bills.
Here’s a rundown of what’s happening and how it could affect you.
What’s happening?
The cap that applies to concessionally taxed super contributions is reducing from $50,000 to $25,000 pa on 1 July for people aged 50 or over.
While the Government had previously stated that it will retain the cap at $50,000 pa for people age 50 or over for those with less than $500,000 in super, it has recently announced that this will not be the case for at least the next 2 financial years. So the lower cap of $25,000 will apply to all people from 1 July 2012, regardless of age.
The concessional contributions cap applies to employer contributions (such as superannuation guarantee contributions and contributions made under a salary sacrifice arrangement) as well as personal contributions claimed as a tax deduction.
Should you do anything before 1 July?
If you think you’ll be affected by the change, you may want to make the most of the higher cap this financial year by making concessional contributions of up to $50,000 before 30 June.
After that date, it’s important to review your contributions with your adviser and reduce them if necessary.
If you exceed the cap, you could end up paying excess contributions tax of 31.5%.
What if you’re not impacted by a lower cap?
Even if you don’t need to adjust your super contributions from 1 July, it’s still important to be aware of the consequences of contributing too much to super.
Since the contribution caps were introduced five years ago, the Australian Taxation Office has issued 65,000 people with excess contributions tax bills totalling approximately $400 million.
While super is still a very tax-effective place to save for retirement, the benefits can be unwound if you put in too much.
A financial adviser can look at your current cashflow position, how long you have until you plan to retire and a range of other factors. They can then help you identify a contribution plan that maximises the benefits of super without triggering tax penalties.